What Is a Mortgage?

A mortgage is a loan used to purchase or maintain a home, plot of land, or other real estate. The borrower agrees to pay the lender over time, typically in a series of regular payments divided into 澳洲幸运5官方开奖结果体彩网:principal and interest. The property then serves as 澳洲幸运5官方开奖结果体彩网:collateral to secure the loan.

A borrower must apply for a mortgage through their preferred lender and meet several requirements, including minimum 澳洲幸运5官方开奖结果体彩网:credit scores and 澳洲幸运5官方开奖结果体彩网:down payments. Mortgage applications undergo a rigorous underwriting process before they reach the closing phase. Mortgage types, such as conventional or fixed-ra🍸te loans, vary based on the borrower's needs.

How Mortgages Work

Individuals and businesses use mortgages to buy real estate without paying the entire purchase price upfront. The borrower repays the loan plus interest over a specified number of years until they own the property 澳洲幸运5官方开奖结果体彩网:free and clear. Most traditional mortgages are fully amortized. This means that the regular payment amount will stay the same, but different proportions of principal vs. interest will be paid over the life of the loan with each payment. Typical mortgage terms are for 15 or 30 years, but some mortgages can run for longer terms.

Mortgages are also known as liens against property or claims on property. If the borrower stops paying the mortgage, the lender can 澳洲幸运5官方开奖结果体彩网:foreclose on the property.

For example, a residential homebuyer pledges their house to their lender, which then has a claim on the property. This ensures the lender’s interest in the property should the buyer default on their financial 澳洲幸运5官方开奖结果体彩网:obligation. In the case of foreclosure, the lender may evict the residents, sell the property, and use the money from the sale to pay off the mortgage debt.

The Mortgage Process

Would-be borrowers begin 澳洲幸运5官方开奖结果体彩网:the process by applying to one or more mortgage lenders. The lender will ask for evidence that the borrower can repay the loan. This may include bank and investment statements, recent 澳洲幸运5官方开奖结果体彩网:tax returns, and proof of current employment. The lender will generally run a 澳洲幸运5官方开奖结果体彩网:credit check as well.

If the application is approved, the lender will offer the borrower a loan up to a certain amount and at a par🌱ticular interest rate. Thanks to a process known as pre-approval, homebuyers can apply for a mortgage after they have chosen a property to buy or even while they are still shopping for one. Being pre-approved for a mortgage can give buyers an edge in a tight housing market because sellers will know that they have the money to back up their offer.

Once a buyer and seller agree on the terms of their deal, they or their representatives will meet at what’s called a closing. This is when the borrower makes their down payment to the lender. The seller will transfer ownership of the property to the buyer and receive the agreed-upon sum of money, and the buyer will sign any remaining mortgage documents. The lender may charge fees for originating the loan (sometimes in the form of points) at the closing.

Types of Mortgages

Mortgages come in various forms. The most common types are 30-year and 15-year fixed-rate mortgages. Some mo🦹rtgage terms are as short as five years, while others can run 40 years or longer. Stretching payments over more years may reduce the monthly payment, but it also increases the total amount of interest that the borrower pays over the life of the loan.

Various term lengths include numerous 澳洲幸运5官方开奖结果体彩网:types of home loans, including 澳洲幸运5官方开奖结果体彩网:F༒ederal Housing Administration (FHA) loans, 澳洲幸运5官方开奖结果体彩💎网:U.S. Department of Agriculture (USDA) loans, and 澳洲幸运5🐠官方开奖结果体彩网:U.S. Department of Veterans Affairs (VA) loans available for specific populations that may not have the income, credit scores, or down payments required to qualify for 澳洲幸运5官方开奖结果体彩网:conventional mortgages.

The following are just a fe🃏w examples of some of the most popular types of mortgage loans avai🔯lable to borrowers.

Fixed-Rate Mortgages

The standard type of mortgage is fixed-rate. With a 澳洲幸运5官方开奖结果体彩网:fixed-rate mortgage, the 澳洲幸运5官方开奖结果体彩网:interest rate stays the same for the entire term of the loan, as do the borrower's monthly payments to🌺ward the mortgage. A fixed-rate mortgage 🧜is also called a traditional mortgage.

Adjustable-Rate Mortgage (ARM)

With an adjustable-rate mortgage (ARM), the interest rate is fixed for an initial term, after which it can 澳洲幸运5官方开奖结果体彩网:change periodically based on prevailing interest rates. The 澳洲幸运5官方开奖结果体彩网:initial interest rate is often below market, which can make the mortgage more affordable in the short term but possibly less affordable in th▨e long term if the rate rises substantial🍃ly.

ARMs typically have limits, or caps, on how much the interest rate can rise 澳洲幸运5官方开奖结果体彩网:each time it adjusts and in total over the life of the loan.

Interest-Only Loans

Other, less common types of mortgages, such as interest-only mortgages and payment-option ARMs, can involve complex repayment schedules and are best used by sophisticate🍃d borrowers. These loans may feature a large balloon payment at the end.

Many homeowners got into financial trouble with these types of mortgages during the 澳洲幸运5官方开奖结果体彩网:housing bubble of the early 2000s.

Reverse Mortgages

As their name suggests, 澳洲幸运5官方开奖结果体彩网:reverse mortgages are a very different financial▨ product. They are designed for homeowners age 62 or older who want to convert part of the equity in their homes into cash.

These homeowners can 澳洲幸运5官方开奖结果体彩网:borrow against the value of their home and receive the money as a lump sum, fixed monthly payment, or line of credit. The entire loan balance becomes due when the borrower dies, moves away permanently, or sells the home.

Average Mortgage Rates (So Far for 2025)

How much you’ll have to pay for a mortgage d♍epends on the type (such as fixed or adjustable), its term (such as 20 or 30 years), any discount points paid, and the interest rates at the time. Interest rates can vary from week to week and from le𓆉nder to lender, so it pays to shop around.

Mortgage rates sank to historic lows in 2020 and 2021, recording their cheapest levels in almost 50 years. From roughly the start of the pandemic (April 2020) to Jan. 2022, the 30-year fixed-rate average hovered below 3.50%—including an ultimate low of 2.65%.

But 2022 and 2023 saw mortgage rates skyrocket, setting records in the opposite direction. The 30-year fixed-rate average breached the 7% threshold for the first time in 20 years in Oct. 2022. This past October, the rate was closer to 8%, notching a 24-year peak reading of 7.79%. In the months since then, the 30-year mortgage rate has fluct🅷uated, dropping by more than a percentage point by the end of 2023 and surpassing 7% again in April and May 2024.

According to the Federal Home Loan Mortgage Corp., average interest rates looked like thiღs as of April 2025:

• 30-year fixed-rate mortgage: 6.83%
• 15-year fixed-rate mortgage: 6.03%

How to Compare Mortgages

Banks, savings and loan associations, and credit 🦄unions were once virtually the only sources of mortgages. Today, however, a burgeoning share of the mortgage market includes nonbank lenders such as Better, loanDepot, Rocket Mortgage, and SoFi.

If you’re shopping for a mortgage, an online 澳洲幸运5官方开奖结果体彩网:mortgage calculator can help you compare 澳洲幸运5官方开奖结果体彩网:estimated monthly payments based o🎉n the type of mortgage, the interest rate, and how large a down payment you plan to make. It can also help you determine how expensive a property you can reasonably afford.

In addition to the principal and interest you’ll be paying on the mortgage, the lender or mortgage servicer may set up an escrow account to pay local property taxes, homeowners insurance premiums, and other exp൲enses. Those costs will add to your monthly mortgage payment.

Also, note that if you make less than a 20% down payment when you take out your mortgage, your lender may require that you purchase 澳洲幸运5官方开奖结果体彩网:private mortgage insurance (PMI), which becomes another monthly cost.

The Bottom Line

Mortgages are an essential part of home buying for most borrowers who aren’t sitting on hundreds of thousands of dollars of cash to buy a property outright. Different types of home loans are available for whatever your circumstances may be. Different government-backed programs allow more people to qualify for mortgages and make their dream of homeownership a reality, but 澳洲幸运5官方开奖结果体彩网:comparing the best mortgage rates will mak💖e the home-buying pr🌺ocess more affordable.